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July 2018

What’s the Point?
What’s the Point? 628 419 patrickgardner

What's the Point?

Your financial house is in order and you’re ready to make your dream of homeownership a reality. Now it’s time to get a mortgage. So what are these so called “points” and is there a point in paying them?

A “point” equals one percent of the loan. Discount points are used by borrowers to buy down their mortgage interest rate. It’s essentially an upfront interest payment to lock in a lower interest rate on your fixed-rate mortgage. So if you are borrowing $200,000, paying one discount point would mean paying $2,000 upfront at closing – but it may end up saving you more in interest payments over the life of the loan.

Deciding whether to pay more points for a lower interest rate or pay less/no points and pay a higher interest rate depends on your personal circumstances. They include factors like how long you expect to stay in the home and whether you can afford to make an upfront payment.

Interested in seeing how paying extra points might lower your rate? At Vellum we are experts in assisting you with your overall financial picture. Ask your Vellum Loan Officer for more details!

Source: Freddie Mac

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Should You Refinance to a Shorter-Term Loan?
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Should You Refinance to a Shorter-Term Loan?

New homebuyers often choose to take out longer term mortgages such as a 30 year term mortgage on their new homes due to the security and peace of mind that a consistent monthly mortgage payment provides. However, a 30 year term can be really long time! It is especially long when thinking about things like putting kids through college, saving for retirement or all the fun surprises life likes to throw your way.  

Paying off your mortgage sooner will free up a lot of cash that can be used for other upcoming commitments. It also means you will save money in interest over the life of your loan because you are paying down your mortgage significantly faster. But can you really afford to do it?

You have a steady and reliable income, you may be a prime candidate for mortgage refinancing because you can afford the bump in expense that a shorter term loan will most likely bring.

For example, a 30 year loan of $100,000 at 4.5% would cost roughly $506 per month (principal and interest). A 15 year loan at the same rate would be approximately $765. For home owners who currently already have some extra disposable income at the end of the month the $259 increase between the two terms would be manageable. Keep in mind, a higher debt to income ratio would be required on the 15-year term because of the higher monthly payments.

Refinancing a home for a shorter term makes sense for those homeowners who have an interest rate of 4% or higher and who have not refinanced in the past six months. It also would make sense for people who are looking to build equity in their home sooner.

Is there an option for homeowners who don’t meet the criteria to refinance? For those homeowners who are afraid of committing to a larger monthly payment or who can’t meet the new income to debt ratio that the shorter term requires, they can still get the same benefits by consistently paying extra on the principal of their mortgage. Another option might be a variety of shorter terms such as 20 years instead of 15 or 10.

There are many things to consider when refinancing a home. We are happy to take a look at your current financial picture and see what option would best work for you and your long term goals.

The post Should You Refinance to a Shorter-Term Loan? appeared first on Vellum Mortgage.